Tax cuts are going to keep being a boon to the shareholder class

But as the impacts of the corporate tax cut passed late last year by the Trump administration begin to be seen across the economy, it is clear that the shareholder class will be the largest beneficiary of this overhaul to the tax code. This continues a theme we’ve seen since the election — shareholders winning.

On Wednesday, two separate corporate announcements highlighted what is likely to be a theme during a fourth quarter earnings season that will pick up steam in the coming weeks.

Bank of America (BAC), which reported earnings before the market open on Wednesday, said that most of the benefits it gets from tax cuts will be used on capital return. On the company’s earnings conference call Wednesday, Bank of America Brian Moynihan said “most of the benefits” from tax cuts “will flow to the bottom-line through dividends and share buybacks over time.”

Companies are raising wages and paying bonuses after tax cuts, but the real winners are shareholders.

Moynihan noted that in 2017, Bank of America had $16.6 billion of net income available to shareholders and returned $16.8 billion through dividends and buyback. “So, yes, we will expect to return more capital to shareholders given the tax [cut],” Moynihan said.

Repatriated earnings = buybacks

And then on Wednesday afternoon, Apple (AAPL) announced that it would “contribute” $350 billion to the U.S. economy over the next five years. In this announcement, Apple identified $30 billion of direct investment as part of this contribution and $38 billion in taxes due to repatriating overseas earnings.

Analysts at RBC Capital Markets said Thursday that this tax indicates Apple will bring back $207 billion after taxes and said they believe “almost all of it” will be used to reward shareholders through share buybacks or dividends. Apple also announced Wednesday that all employees will get $2,500 of restricted stock, and while this news is a clear positive for employees it also implicitly acknowledges that one must be a shareholder to see the clearest benefit from lower taxes.

Even before President Donald Trump was elected, analysts had speculated on what the impact of lower corporate taxes — one of his key campaign promises — would be on the economy. Many argued then that much of the money held overseas by U.S. companies and repatriated as part of a tax bill would be used to reward shareholders, not increase investment in the U.S.

Goldman Sachs analysts, for example, said in October 2016 that repatriated earnings brought to the U.S. as part of the 2004 tax cut were used largely to repurchase stock. As Yahoo Finance’s Sam Ro noted at the time, “Buybacks have become the most controversial use of excess cash as 1) they aren’t as productive as business investment and 2) they inflate earnings per share by reducing share count.”

Rewarding existing shareholders for remaining shareholders would certainly be argued by many to be a productive business investment, share repurchases have caught the ire of many commentators since the financial crisis as economic growth has stagnated. And while the business and investor community clearly supports Trump’s pro-business agenda, rewarding shareholders after tax cuts is clearly going to be a prominent feature of the immediate economic response to this new tax regime.

Now, dozens of companies have announced bonuses or wage increases for employees in the wake of tax cuts. And wage increases, particularly for those making hourly wages near the lower-end of the income scale, are not to be dismissed empty gestures from corporations, as these low-wage workers are likely to spend — rather than save — additional dollars of income. And more spending from consumers means more economic growth.